Bernanke: Economy needs time to heal

By MARK FELSENTHAL
April 30, 2011

Federal Reserve Chairman Ben Bernank(REUTERS/Jason Reed)

The U.S. economy is not fully recovered from its deep recession, with housing still weighing on growth, Federal Reserve Chairman Ben Bernanke said on Friday in a speech spelling out ways the U.S. central bank has studied lower income communities.

“Our economy is far from where we would like it to be,” he said in prepared remarks to a conference.

The Fed earlier this week said it will see its $600 billion bond buying program, launched in November to spur a weak recovery, through to its planned conclusion at the end of June.

The world’s largest economy grew at a sluggish 1.8 percent annual rate in the first three months of the year, but unemployment is still at a lofty 8.8 percent.

The depressed housing market is holding back the economic recovery, Bernanke said. Home foreclosure rates remain high and many families find themselves owing more for their homes than the homes are worth.

“Obviously, the problems in the labor market and the housing market are not unrelated,” he said.

The Fed chairman said Fed research shows loans to individuals and businesses through community development financial institutions can boost economic activity. That business generates tax revenues that in turn permits government spending in ways that benefit these communities, he said.

“We at the Federal Reserve will remain closely attuned to the economic health of all communities, including low- and moderate-income communities,” Bernanke said.

With rising prices fueling concern about inflation, the Fed is under some pressure to tighten policy after unprecedented and aggressive easing measures. Several Fed officials believe the central bank should act quickly to pare its bloated balance sheet and other major central banks around the world have begun to raise interest rates in response to price pressures.

However, the Fed made clear through a statement and a press conference by Bernanke on Wednesday that with a high jobless rate, extensive lost wealth, and inflation levels still not much higher than historic lows, the central bank has no immediate plans to withdraw support.

Bernanke said on Friday the economy is recovering at a moderate pace, and that there has been “welcome, if gradual” improvement in labor markets.